DESPITE having been delayed for about two quarters, CTOS Digital Bhd expects a positive outcome by 1Q 2022 to its pioneer status tax-relief application.
According to Hong Leong Investment Bank (HLIB) Research, CTOS has already filed for a five-year extension of the tax incentive till November 2026 for its CTOS Data System’s to the Malaysia Digital Economy Corporation (MDEC).
“Meanwhile, we also believe that CTOS would be a key beneficiary of the digital banking initiatives by Bank Negara Malaysia (BNM) as the entire ecosystem is expected to be more catered towards the underserved and unserved banking population – which will inevitably require more credit reporting assessments,” opined analyst Jeremie Yap in a company update.
The Malaysian central bank is looking to roll out five digital banking licenses in 1Q CY2022 to hasten the penetration of innovative banking technology and boost financial inclusion by targeting the underserved and unserved banking population.
HLIB research further noted that it likes CTOS for the following reasons:
- The company is poised to ride on the bright prospects of the ASEAN Credit Reporting Industry;
- Its position as the leading CRA (credit rating agency) in Malaysia with an estimated market share of 71.2% in 2020;
- Its long-term relationships with its customers with over three decades of history with domestic banks and financial institutions; and
- The nature of its business which has an exceedingly high barrier to entry.
All-in-all, the research house reiterated its “buy” rating on CTOS with an unchanged target price of RM2.45 which implies a FY2022F price-to-earnings ratio (P/E) of 74 times which is at a premium compared to its global CRA peers’ average FY2022F forward P/E of 34 times.
“We believe that the valuation premium is justified as we are expecting CTOS to grow faster than its peers with an FY2021-2022F growth of 27% and 26% respectively (versus an average of 12% and 10% for its global peers),” added HLIB Research.
At 9.50am, CTOS was up 2 sen or 1.16% to RM1.74 with 190,300 shares traded, thus valuing the company at RM3.83 bil. – Jan 26, 2022
